Congressmen quiz telcos on impact of VoIP deregulation

By Erwin Lemuel Oliva INQ7.net

FOR more than two hours, Congressmen grilled lawyers of Philippine telephone companies on the issue of whether or not Voice over Internet Protocol (VoIP) will mean the death of their voice business.

Wednesday’s Congressional hearing on several proposed measures to deregulate VoIP in the Philippines generated heated debates -- some even happening in the background -- as lawmakers tried to comprehend this major inflection point in the Philippine telecommunications industry.

Lawyers of the Philippine Long Distance Telephone Co. (PLDT) and Globe Telecom were singing a different tune this time. They stressed that the proposed measure will deprive government of taxes paid by Philippine telephone companies, as mandated by the Congressional franchise they were granted.

"Mawawala na ang tax na binabayad namin sa government (taxes we're paying to government will be lost)," PLDT lawyer Florentino Mabasa Jr. said, as he indicated the telephone company's vehement opposition to the proposed measures.

House Bills 3476 and 3644, filed by Representatives Clavel Martinez and Abraham Kahlil Mitra respectively, would open commercial VoIP to non-telecommunication companies.

VoIP routes phone calls through the Internet instead of through traditional public switched telephone networks. Its lower cost has made it a popular alternative to traditional long-distance voice calls.

Prior to the new draft rules, VoIP was classified a voice service, which means that -- under the Philippine Telecommunications Act (RA 7925) -- only telecommunications companies with government franchises to carry voice calls were permitted to offer VoIP commercially. But companies were permitted to make use of VoIP for private networks.

Telecommunications companies have opposed the reclassification.

"How can we survive? How can we pay taxes to the government [if we pass such legislation?] Also, will we allow foreign firms now to come into the Philippines and offer VoIP? Only Filipino-owned companies are allowed to offer public services such as telecommunications, as stated in the Constitution," Mabasa continued.

The PLDT lawyer also pointed out that Congress should at least ensure that they would be able to monitor those who can or cannot offer commercial VoIP services in the country.

For the first time, though, Froilan Castelo, assistant vice president for corporate and regulatory affairs of Globe Telecom, admitted that the deregulation of VoIP services threatens the viability of Philippine telephone companies.

But he also agreed with PLDT, adding that the proposed measures would pave the way for US-based firms to come into the Philippine telecommunications market without the need for them to set up physical presence in the country.

"This will again deprive Philippine government of telecommunication franchise taxes," Castelo insisted.

National Telecommunications Commission chief Ronald Solis assured local telcos that the new draft rules on VoIP deregulation will address concerns on "access charges."

"This draft is a work in progress. We will address issues raised on nationality requirements enshrined in the Philippine Constitution," he added.

During public hearing, Representative Roilo Golez dropped the bomb on the local telephone companies when he asked whether or not Philippine telephone companies consider a digitized voice clip attached to an e-mail as a VoIP application.

"You said that anything that is transmitted as voice is under the telecommunications act. So my use of this application is in violation of the law? Are you proposing the ban on voice over the Internet to also impede e-commerce? Is sending a voice clip via e-mail now considered VoIP?"

William Torres, president of Mosaic Communications and member of the Philippine Internet Service Organization, offered an explanation.

"A value added service is called as such because it adds value to the transmission medium, which is now regulated under RA7925. Before, only voice was transmitted. But with the advent of the Internet, marami ng nagbago at marami na rin ang paggagamitan nito (a lot has changed and there are now emerging applications for it). There is a big difference between those who own the transmission and the value-added service (VAS) providers. But VAS providers don't own the networks. So they will need the owners of these transmissions to make money," Torres said.

In a Powerpoint presentation during the hearing, NTC Deputy Commissioner Jorge Sarmiento said the NTC has decided to classify VoIP as VAS because existing laws could eventually become outdated.

"The market should be allowed to evolve with minimal regulation," he added.

NTC said that the benefits of VoIP deregulation are simple: it will increase broadband Internet usage, lower the cost of telecommunications, and encourage competition not only in telecommunications but also in the information and communications technology industry.

"Our draft rules are based on law and sound public policy," Sarmiento said, adding that the draft rules will surely provide fair and just compensation to Philippine telcos if VoIP providers will use their networks.

Philippine Electronics and Telecommunications Federation President Renato Garcia admitted that expected volume business generated out of VoIP services is enough to create a new market for Philippine telephone companies.

"The current total revenues that will be created is in fact predicted to exceed the current total revenues generated by the current market," he added.

Golez, for his part, posed a hypothetical question, asking whether the deregulation of VoIP in the Philippines will cause the collapse of the telecom industry. PISO's Torres said that such a scenario would also mean the death of the ICT industry.

With all this opposition by the local telcos, will the proposed law or even the NTC draft rules fly? Representative Simeon Kintanar, chairman of the House committee on information and communications technology, posed this question to attendees of the public hearing.

NTC Commissioner Solis was succinct, as he replied that local telcos are expected to challenge its draft rules in Philippine courts, thereby delaying deregulation of this technology in the country.

"I believe this is the direction they are headed," the government official added.

Reacting to Solis' statement, Representative Gilbert Remulla said that Congress should now find it crucial to pass a law to deregulate VoIP in the Philippines to "avoid falling to the whims of the courts."

A representative of the Philippine Internet Commerce Society stressed that Congress must ask itself whether it needs to "change policy or adopt a new policy to suit changes in this industry."

Representative Villafuerte, vice-chairman of the committee on information and communications technology, hammered in the best point, as he stressed that Philippine telephone companies are in the best position to compete in the emerging commercial VoIP market in the country.

"It is wrong for them to say that they only have the right to capture the revenues generated from VoIP. Philippine telcos have the inherent advantage over other players to compete in this space," Villafuerte said. His remarks elicited strong applause from the attendees.

Lawyer Gwen Grecia de Vera who represented the Philippine Internet Commerce Society and the academe cautioned Congress about passing laws that might affect the industry.

"VoIP will surely have an adverse effect on their financials. We should admit that our existing laws are biased toward the fixed line business," she said.

De Vera also stressed the lack of information on the cost structure for the telecommunications industry, which will guide lawmakers in the creation of a regulatory framework that will not be ruinous to an industry.

A PICS representative referred to an old case when Sony introduced the Betamax to the movie industry. Movie houses cried foul, and filed a case against the Japanese company. However, years later and after Sony won its case against Columbia Pictures et.al, the movie industry realized more revenues from distributing movies via the new Betamax innovation.

So in the case of VoIP deregulation in the Philippines, the PICS representative said that PLDT and other telephone companies in the country should not be surprised that technological innovations such as VoIP can become very disruptive, and will mean that they too have to keep up or miss the potential revenues generated by applications riding on this new technology.